Goldman Fund Agrees to Buy 12% of Riverstone Holdings for About $500M

By Ryan Dezember

A Goldman Sachs Group Inc. fund has agreed to buy a piece of Riverstone Holdings LLC, one of the world’s largest energy investment firms.

Goldman agreed to pay about $500 million for a roughly 12% stake in New York-based Riverstone, according to people familiar with the matter. The deal would value Riverstone at more than $4 billion and give the Goldman fund a proportional cut of the firm’s management fees and profits.

The deal represents a vote of confidence in Riverstone, which suffered when oil prices collapsed in late 2014 but has recovered as energy prices stabilized, according to securities filings. While some of its big investments, such as oil explorers EP Energy Corp. and Fieldwood Energy LLC, remain underwater or flat, Riverstone has had big profits in others, particularly companies that drill in the Permian Basin in West Texas.

For Goldman, it represents the latest move in the Wall Street giant’s recent push into private equity. While most banks spun off their private-equity arms to comply with post-financial crisis regulations, Goldman bet that it could navigate the new rules and held on to its buyout business. Recently, it has launched new private-equity vehicles including the Petershill Private Equity fund, which buys stakes in other asset managers.

Goldman launched Petershill in 2007 to take minority stakes in hedge-fund managers. With the hedge-fund business lately struggling with poor returns and fleeing investors, Petershill broadened its strategy. Private-equity funds, which lock up cash from big investors for a decade or more and use it to buy entire companies, tend to be more stable than hedge funds, which typically rely on more volatile investment strategies that make them vulnerable to big economic swings and investor withdrawals. Private-equity funds have also tended to produce better returns than hedge funds over time.

Goldman began pitching a private-equity focused Petershill fund to investors last year. It is targeting $2 billion and so far has raised about half that amount. Petershill funds already have bought minority stakes in Littlejohn & Co., a private-equity firm that specializes in midsize companies, and energy investor ArcLight Capital Partners.

Private-equity fund managers, meanwhile, have used the strategy of selling slivers of their firms as an alternative to going public or taking on debt to fuel expansion. None of Riverstone’s partners is cashing out in the deal, though their stakes will be diluted by the new equity being created, the people said. Riverstone plans to reinvest proceeds from the stake sale into its business and bring on more of the big-name energy executives and bankers it relies on to find and execute deals.

The deal is a reunion of sorts for Riverstone’s founders, David Leuschen and Pierre Lapeyre Jr., who worked as high-ranking energy bankers at Goldman, arranging oil company mergers and stock sales before leaving to start the investment firm in 2000.

Since then, Riverstone has raised some $36 billion from pensions, endowments and wealthy families.

Messrs. Leuschen and Lapeyre have frequently tapped their Goldman connections to recruit deal makers and find investment opportunities. Riverstone’s investment committee includes 14 people who have Goldman on their r&#233;sum&#233;s; others, including former EOG Resources Inc. Chief Executive Mark Papa, joined the firm after working with Riverstone executives during their Goldman days.

Write to Ryan Dezember at ryan.dezember@wsj.com

Breaking the story

Ryan Dezember broke the news that a Goldman Sachs Group Inc. fund has agreed to pay about $500 million for a roughly 12% stake in New York-based Riverstone Holdings LLC, one of the world’s largest energy investment firms. The deal would value Riverstone at more than $4 billion and give the Goldman fund a proportional cut of the firm’s management fees and profits.

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